The psychology of life insurance advertising

If you’ve ever watched daytime TV, you’ll know the adverts. Sometimes they are fronted by a celeb. Often, they feature a couple joyously experiencing life or discussing their death.

I’m talking of course about ads for whole of life insurance, over 50s plans, and funeral plans. A wealth of psychological research has gone into ensuring the effectiveness of these ads.

But they could also exploit cognitive biases which prevent consumers from making informed decisions when it comes to these products. By understanding these biases, firms might be able to make adverts and purchase journeys fairer for potential customers.

Whole of life insurance, over 50s plans, and funeral plans meet a consumer need, and often deliver good value to customers. However, these products won’t be suitable for everyone. There are also concerns that some of these products in the market provide poor value to many consumers.

What makes for good and effective marketing in other sectors can lead to consumer detriment in life insurance and funeral plans. This is partly because consumers don’t have the same opportunity to learn from their mistakes.

It’s therefore important that consumers are making well-informed decisions that they (or their loved ones) don’t later regret.

What do we know about cognitive biases in the context of life insurance and funeral plans?

• We don’t usually like thinking about death. When we think about our death, we can begin to feel anxious about what it would mean for us and our loved ones. One of the ways we can ease this anxiety is by saving for our future. This gives us peace of mind that our loved ones will be provided for when we pass away. It’s this desire to alleviate this kind of anxiety that drives funeral plan and life insurance purchases. It’s important that firms don’t exploit or exaggerate this anxiety to generate sales.

• Once we have a number in our heads it’s hard to forget. When we’re thinking about value, the first number we hear is very difficult to get out of our head. Whether the number is low or high, this will impact our judgement of what we think is a fair price. People also dislike working with large numbers, and our brains are wired to prefer working with small numbers. Marketing for life insurance products often emphasises the low cost per month. Customers might not fully process the total cost to them over the lifetime of the product, preventing them from making sound financial decisions.

• When our confidence is low, we look to people we trust. Research tells us that when we are unsure of what to do, we look to respected and trusted figures to lead by example. Well-respected celebrities and household names regularly front adverts about over 50s plans, funeral plans, and life insurance. They lend their trustworthiness to the products they’re promoting. It’s important that firms don’t use celebrity trustworthiness to sell low quality products.

 How can firms avoid exploiting these biases?

• Don’t play on anxiety about death. For those who are in ill health, insurance products can be helpful to alleviate worries about being unprepared. But we shouldn’t assume that this is true for all customers. Firms can help mitigate for misplaced anxiety and clouded judgement brought about by thinking about death. It can also help consumers make rational decisions about their long-term financial planning, rather than encouraging short term pessimistic fixations on their mortality.

• Explicitly lay out long term projections of cost. To combat the anchoring effect, firms should clearly spell out long-term projections of costs and benefits of their products. This allows consumers to get a full and clear understanding of the money they will pay and how much they could stand to gain. They will be able to make better informed decisions, without feeling stressed or anxious about dealing with maths.

• If using celebrity endorsement, make sure they also communicate the key costs and risks. The trust that celebrities lend to a brand cuts both ways. If firms are using them to extoll the benefits of their products, they should also not diminish its risks and costs. Their trust should empower firms to get out ahead of potential risks and let consumers know about risks associated with their products. The celebrity can clearly lay out the positives and negatives of the product, in a way that consumers can understand and trust. This would enable consumers to make better informed decisions in financial markets in which they have limited confidence or experience.